Discrimination Without Taste - How Discrimination can Spillover and Persist

Ramachandran, R. and Rauh, C.

We introduce coordination failures driven by beliefs regarding the presence of taste discriminators as a channel of discrimination in activities requiring the input of more than one individual for production to occur. We show discrimination can persist forever under perfectly observable ability, when taste for discrimination has died out, and under absence of discriminatory social norms. Empirically, we analyze the market for self-employment in the US, a market requiring input from multiple sources. Consistent with the theoretical prediction, we find beliefs about discrimination to be a significant negative correlate of self-employment rates of blacks in the US.